Will Midterm Elections Cause the Trump Bull Market to Crash? History Says There's Good and Bad News...
Key Points
The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite have delivered well-above-average returns under President Donald Trump.
Prediction markets overwhelmingly expect Democrats to retake control of one or both houses of Congress on Nov. 3.
While a divided Congress makes debt-ceiling negotiations trickier, it also adds a level of predictability that Wall Street and investors tend to appreciate.
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From a statistical standpoint, Wall Street couldn't be happier with President Donald Trump's time in the White House. The average annual return of the Dow Jones Industrial Average (DJINDICES:^DJI), S&P 500 (SNPINDEX:^GSPC), and Nasdaq Composite (NASDAQINDEX:^IXIC) has been higher under Trump than under most other presidents over the last 130 years.
But the Nov. 3 midterm elections can change everything for the Trump bull market. Though not all laws passed on Capitol Hill have a bearing on Wall Street, Congress is ultimately responsible for crafting the fiscal policy that directly influences corporate America.
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President Trump may be working with a divided Congress come January 2027. Image source: Official White House Photo by Daniel Torok.
Based on what prediction markets expect and what history tells us, a good-news/bad-news scenario awaits stocks.
Will there be a Trump bull market crash?
Entering midterm elections, Republicans hold narrow leads in the House of Representatives (218 of 435 seats) and the Senate (53 of 100 seats). As of Oct. 24, traders on Polymarket believe there's a 66% chance that Democrats will retake both houses of Congress. Another 26% of traders expect the GOP to retain the Senate but lose the House.
While prediction markets offer no guarantees, there's an overwhelming belief that President Trump will be working with a divided Congress come January 2027.
BREAKING: Democrats surge in odds of sweeping both the House & Senate, with just 10 days until the midterm elections. 66% chance. https://t.co/0VsfxSpQSA
— Polymarket (@Polymarket) October 24, 2026
A few years ago, online retirement planning platform Retirement Researcher calculated the average annual return of the S&P 500 from 1926 to 2023 under four political scenarios: Unified Democrat, Unified Republican, Democratic president with a divided Congress, and Republican president with a divided Congress. Whereas the first three scenarios generated average annual returns ranging from 14.01% to 16.63%, a divided Congress with a Republican president produced the worst average annual return: 7.33%.
Although history points to subpar stock market returns if Republicans lose one or both houses of Congress on Nov. 3, the odds of a stock market crash are no higher in this scenario than in any other. Even at 7.33%, the average annual return of stocks remains superior to other asset classes, such as commodities, real estate, and bonds.
Image source: Getty Images.
A divided Congress would offer benefits and drawbacks for investors
In some ways, a divided Congress can be preferable for Wall Street and investors.
For example, the ideological differences between America's two prominent political parties make it unlikely that major legislation will be signed into law during the second half of Donald Trump's term. This means federal tax law and projected government spending should be highly predictable for the foreseeable future. If there's one thing investors absolutely love from Washington, D.C., it's predictability.
But there are still potential speed bumps for the stock market if prediction markets prove accurate and Democrats retake one or both houses of Congress. Arguably the biggest headwind for Wall Street, aside from persistently elevated inflation, is the potential for a prolonged government shutdown.
US national debt hits a new record: $40.4 trillion U.S. National Debt: 1990 - $3.2T 1995 - $5T 2000 - $5.7T 2005 - $8T 2010 - $13.6T 2015 - $18.2T 2020 - $27T 2025 - $38.5T Now - $40.4T
— World of Statistics (@stats_feed) October 23, 2026
Unified governments rarely have any issues raising America's debt ceiling. But when one or both houses of Congress are controlled by the party opposite to a sitting president, political gridlock can lead to protracted government shutdowns that do real damage to the economy (and the stock market).
Thankfully, decades of return data show that the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite have risen regardless of which party holds the majority in Congress. But this doesn't mean the next two years won't be a bumpy ride.
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Sean Williams has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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